DAX Stocks Follow Global Rally Ahead of Jackson Hole Speech
German stocks follow US and global markets higher on increasing hopes for a Fed rate cut in September.
The DAX, up 0.82% on the day, is following the global sentiment on dovish policy from the Fed. Today at 10 a.m. ET, Fed Chair Powell will give a speech at the meeting of central banks in Jackson Hole.
The market is expecting to hear comments that will leave the door open for a rate cut in September. The general consensus is that a rate cut will materialize, the only question is whether it’s a 0.25% or 0.50% cut.
The CME FedWatch tool shows Fed Funds are pricing in a 75.5% probability of a 25bp cut and a 24.5% probability of a 50bp cut. The market is well geared up for the event in September, but Powell’s words later today will also impact the market.
Anything short of a clear hint that inflation has shown to have stabilized and job data seems to be weakening, so there’s a high likelihood of dovish action will send markets into a frenzy.
The German stock market is more dependent on the ECB; however, the DAX has been following the US market with a high degree of correlation. So, whatever happens later today, it’s probably going to follow suit.
Technical View
The day chart above for the DAX shows a market that may have broken into a bullish trend if today’s candle confirms the break above the Ichimoku cloud. The current price level has reached a resistance of 18,601 (black line), which corresponds to a previous high.
That high is the left shoulder of the head and shoulders pattern (yellow line) that the market broke in the rout at the end of July. The market has since retraced all the lost ground. And more, it’s now above the neckline of the pattern (diagonal grey line).
A market break below the neckline signals a bear trend, and when the market breaks back above it signals the bear trend may have been exhausted. The next resistance level is at 18,785 (blue line), which corresponds to the right shoulder of the pattern.
To actually confirm a bull trend, we would need to see the market break above the all-time high of 18,913 (red line). At the same time the RSI should rise above 70 in a show of strong momentum.
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